Chicago Housing Bubble

Foreclosures anyone?

Let's get in the time machine and go back to 1997 when a little thing called the "Dot Com" boom was happening. In my clouded memory, I remember:

• everyone wanted to work for a Dot Com
• everyone wanted to buy stock in a Dot Com
• everyone wanted to find the next IPO
• everyone felt they "couldn't lose" on these companies that were printing money

We know what happened next. Although it's not exactly the same thing, foreclosures have become the newest thing that everyone wants to buy.

As promised, here is another slide from the presentation I attended earlier this week. This shows the rate of foreclosures by state in 2008:

Not surprisingly, Nevada is the #1 state and THE ONLY ONE that has a rate of more than 5% (in fact it's 7.1%).

What do I take away from this? Foreclosures are not easy to find and represent (at best) about 1 in 20 homes on the market. What this doesn't tell you: the other 19 homes on the market are priced (in many cases) just as well (or better) AND represent excellent deals to buyers who are interested in insulating themselves from the market.

Supply matters too...

A couple weeks ago, I wrote about demand on the northside* being down 44% in the condo market. These numbers were derived by comparing January of past years to January of THIS year.

But let's face it - demand only matters as it relates to supply. So I took some time to pull the same information together, but now I looked at:

• the first 57 days of the year
• the correlation to supply in the same area

We're defining "northside" as MLS areas: Near North, Lincoln Park, Lakeview, Uptown, Lincoln Square, North Center and Edgewater...

What we can gather from this information:

1. Supply is down 19.1% this year (so far)
2. Demand is down 47.1% this year (so far)
3. For every unit that has gone under contract this year - 2.93 units have replaced it on the market. This is almost DOUBLE what it was last year and 4.5 times what it was at the peak

MORAL(S) of the story:

1. if you're ready to buy, there hasn't been a better buyer's market in a LONG time.
2. if you're selling - get ready to (say it with me) price your home appropriately to the market and DO NOT expect to "wait and see what happens". With demand shrinking at this rate, you have to be ahead of the market.

Houses: as affordable as ever

For the past 4 days I was attending a real-estate convention for my company, Keller Williams.

I attend the convention every year and find the most satisfying presentation always to be Gary Keller's "Vision Speech". In this 2-hour presentation (that almost ALWAYS goes over 2 hours) he shares a common-sense, non-sugar-coated view of the US and Canadian housing markets. The research is complete and the hypotheses are without bias. (And the nerdy Realtors in the room are fixated!)

Being one of those nerdy Realtors, I want to share some of the more interesting pieces of information to come out of the presentation. I'll do this over the next week or so. Remember - while here at CHB we work to maintain focus on the Chicago market, this information is presented for the US housing market as a whole. But real estate is a LOCAL business - so proceed with caution.

The first slide I want to share is on Housing Affordability...

Between 2004 and 2007 people were breaking a classic rule of Warren Buffet's: "The investor of today does not profit from yesterday's growth."

People were buying their faces off, trying to capture the growth in the market that had started in the late 90's. There were roughly twice as many buyers in the housing market in 2006 as there are today in 2009. But back then housing was at least 25% more expensive.

In other words, housing consumers would rather pay higher prices than lower prices. Or put another way - housing consumers will pay full price, but don't like to buy things on sale.

From now on, I'm suggesting we all follow another classic Warren Buffet rule: "Be fearful when others are greedy and to be greedy only when others are fearful."

Chicago housing falls less than other places

What was that classic saying about every grey cloud has a silver lining?

On Monday, the always-encouraging Case-Shiller report was released. Here are the highlights:

• Chicago is now at December 2003 prices
• Chicago's home prices lost 3% from November to December 2008
• Chicago lost 14% from December 2007 - December 2008

But the Sun-Times (in a move not typical of a media outlet) reported the "good" news - we did better than a lot of the other cities in the index (ie. 14% instead of 18%! Yay!) Well done Sun-Times.

Want more good news? Condo prices fell just 7%.

This is interesting and helpful information when pricing homes. Why? Because it means that on average, a home loses 1.2% of value every month. A great reminder that you need to price AHEAD of the market...

Illinois Realtors make sense of the housing credit

I've been out of town at a convention and super-busy selling real estate here in Chicago. So I'm going to rapid-fire some information...

First on the list is the last thing I'm going to say (for now) about the Federal Housing Tax Credit: the Illinois Association of Realtors put out an information flyer that does a good job of explaining the same things that I explained last week. But I thought it was worth sharing.

Here's the flyer. Enjoy.

IRS Form 5405 - the housing credit!

Hot off the presses comes IRS form 5405 used to file your federal income tax credit for buying a home this year.

Yay!

Housing credit details

I finally found something I feel is worthy of posting here about the details of the housing credit that was included in the stimulus package. I think this explains everything pretty well.

Bottom line - it isn't $15,000, but it is $8,000. And 8 grand is better than nothing!

$15K tax credit update

I was upset to see the $15,000 tax credit for home buyers stripped from the stimulus package. But as I told a client just this morning... don't be surprised if we see a separate bill that passes through Congress with "Housing" on the marquee (instead of buried inside $800 billion of other stuff).

Here's the first rumblings of what I'm talking about.

And the good news is that, while not final, the stimulus bill DOES have a provision in it that allows buyers to take an $8000 credit as long as they buy by August of 2009. Awesome.

Chicago: The Miserable City?

Last week, Forbes released their list of the 10 most "miserable" cities in America. And guess where Chicago ranked?

#3.

What a bunch of crap.

Will housing be left out of the stimulus bill?

It's horribly frustrating trying to determine what is and what is not included in the stimulus package for housing. I've read no less than 5 summaries of the supposed $15,000 tax credit and all of them have had fundamental differences in what the qualifications are. Here are the questions I've been investigating:

1. Is it only for first-time homebuyers?

Most versions I've read have said that yes, you have to be a first-time homebuyer. A first-time homebuyer is defined as someone who has not owned a property in the past 3 years. Also - if you own a property, but it's not a *primary* property, you can be considered a first-time homebuyer if you're buying a primary residence.

2. Can it be for investment properties?

Everything points to NO - it can not be for investments. To qualify, the home you buy must be a primary residence.

3. Is it a credit or a deduction?

Everything I've read calls it a CREDIT. This is important. That means that the total taxes you owe would be reduced by $15,000 (over 2 years).

4. What if I closed something 2 weeks ago - will I still qualify?

All signs point to no - it would be from the date the law is enacted. In other words, if the law goes into effect on April 1 - anyone who closes a primary residence after 04/01 would qualify if they meet all the requierements.

So there's my understanding. But don't take this summary to the bank either. I have no idea how this whole thing is going to turn out. Especially after reading this Wall Street Journal story about how the whole credit may have been stripped out of the bill.

Sure - I'm a professional, but your guess is as good as mine right now. Stay tuned...